Energy is defined as the ability to do work and encompasses both kinetic and potential energy. A flywheel stores energy through its rotational motion, utilizing its inertia to stabilize speed fluctuations in a system. The energy stored in a flywheel is calculated using the formula E=(1/2)Iw^2, where I is the moment of inertia and w is the angular velocity. The discussion highlights the misconception that only potential energy can do work, emphasizing that kinetic energy also plays a crucial role, particularly in dynamic interactions like collisions. Overall, the conversation clarifies the relationship between energy types and their capacity to perform work.